In this post I want to try and persuade you that there is a form of lottery the Prize Linked Savings scheme that would be popular and fairly cheap to run for the people in Haiti. In my next post I want to explain why such a scheme would actually be useful

"PLS is a kind of savings account that pools some of the interest from all depositors and pays out a big lottery prize every month or so. It combines the thrill of the lottery with the safety of a savings account. It’s sometimes called a “no-lose lottery,” since a depositor is automatically entered into the lottery but can’t lose the original money she deposits."

Lotteries are incredibly popular in Haiti. Probably due to the crushing poverty there the hope and 'chance to dream' lotteries provide is seen as vitally important

"the lottery system in which an astonishing number of Haitians invest their income and their dreams." "At the time of the last official count, in 2005, the streets of Port-au-Prince were home to nearly 2,000 of them" (borlettes lottery shops) "– more than double the number of schools and universities in the city"."All told, Haitians spend as much as $1.5 billion per year on the borlette – a staggering amount in a country whose gross domestic product last year was $6.9 billion"

"You can bet two balls to come up at once, and if that happens you make a ‘marriage’ and win 500 times your bet. If your married numbers are consecutive, you win 1,000 times your bet. The Haitian dream is a bet of US $1,000 that reaps US $10,000 on a consecutive marriage. Many a hopeful future has been built on less." Borlette lottery in Haiti is remarkably popular which is a good indication that a lottery that also acts as a savings scheme will be popular

The overhead cost of these Haitian lotteries is relatively low as they use the numbers and thus the security mechanisms of outside lotteries. These lotteries tend to use the numbers from other countries lotteries for example the New York State Lottery or the Santo Domingo State Lottery

Another expense is the prize won in the lottery. You want your prize to be equivalent to a million euro. This is an amazing life changing amount in Ireland where the average wage is 35K. So a million is about 30 times average income. For Haiti this would be $730 *30= 21 thousand dollars. A million Haitian gourde is about 25 thousand dollars.

If we had a monthly prize of this much that would cost 12*25k=300 thousand a year in prizes. Say you double that with some smaller prizes. 600 thousand which if you were earning 3% interest means you would have to take in 10,000000 dollars. This is a lot of money but in the context of $1.5 billion spent on lotteries in Haiti it is not that much.

If you could take in ten million dollars you could run a no lose lottery in Haiti and use the interest to pay for the prizes. But why would you want to? I will explain in the next post why PLS would be useful to the people of Haiti

Friday, February 18, 2011

There is a new ebook by Tyler Cowen about how growth rates and progress in general has declined since 1973. There is a podcast here where he discusses the argument.

The book, is short you can read it in an evening, and published only in ebook format. It is a bit like an evening with your smart friend as he explains something rather than an economic treatise thats full of equations and aids insomnia. It is well worth the 4 dollars and few hours it takes to read.

Loads of commentators have examined various parts of the argument for stagnating progress. I even joined the argument here. I am going to try give a few datapoints that relate to Ireland that are part of the great stagnation argument here. Ireland has not been stagnating since 1973. In that time we moved from an improvished bachwards country to a modern well off one (and then slipped back somewhat again). But there some areas where we are stagnating in similar ways, there are areas where we made similar mistakes to the Americans (and the rest of the OECD) and if we can expect a similar decline in growth here that means we should alter our expectations.

Stagnating medicine

We spend too much on medicine and do not get good value for that spending. There is a piece here by Ronan Lyons where he argues convincingly that with our age profile we should be spending a third less than what we currently do on medicine

It is generally agreed that access to the health system in Ireland is bad. If we spend more than we should and people cannot get healthcare as easily as other OECD countries do it is fair to say that Irish healthcare is not improving our quality of life the way it should be

Stagnating education

'In the past decade, funding per student has been increased in real terms by 61 per cent, yet performance has decreased by 15 per cent.

This disconcerting news was reinforced before Christmas when the international ranking of the reading, mathematics and science skills of Ireland’s 15-year-olds was published. Reading skills dropped from fifth to 17th, the sharpest drop among 39 countries, with one quarter of all 15-year-olds classified as effectively illiterate. This was more politely termed in the report as “below the level of literacy needed to participate effectively in society”.'

We are spending more and getting less on education. Literacy is one of those basic measures that is hard to fake. Anyone who leaves school illiterate is a failure of our education system. In this school education area Ireland seems to have stagnating improvement.

Expecting too high growthOne of the major conclusions of the book is that Americans expected growth to continue at previous rates and this facilitated the financial crisis. People believed house prices would go up forever without wages increasing at the same rate. When people realised that they could not afford their debts and no one was going to buy them off them the house of cards collapsed.

In Michael Lewis' Vanity Fair piece makes a similar claim that Ireland expected too much growth'An Irish businessman named Denis O’Brien sat on the board of the Bank of Ireland in 2005, when it was faced with the astonishing growth of Anglo Irish, which was about to double in size in just two years. “I remember the C.E.O. coming in and saying, ‘We’re going to grow at 30 percent a year,’” O’Brien tells me. “I said, How the fuck are you going to do that? Banking is a 5-to-7-percent-a-year growth business at best.”'

If the financial crisis in America was aided by delusions of future growth the Irish collapse was to an even greater extent.

Expecting growth to be much higher than it will be leads you to paying too much for things. For example buying empty buildings on the grounds that NAMA will make a profit on them eventually.

Other ClaimsThere is a very interesting section on how the internet might entertain us but does not provide many jobs. There is a similar argument to in "An Exodus Recession?" that because we can sit at home and look at youtube essentially for free the recession both does not feel as bad but is measurably worse as people do not go out and spend money on cinemas etc that employ people.This does not relate specifically to Ireland though I do think the internet has improved our lives in ways that are hard to measure and that probably help those who like reading and arguing more than they help the average person.

Cowen also claims that increased emphasis on scientific research could again get progress moving faster again. I was watching Bronowski's the ascent of man last night from 1973, the year Cowen claims the stagnation began. Bronowski gives a warning that the next step in mankinds progress is dependent on science and that if we don't prevent scientific progress from stagnation some other civilisation will.

Expecting growth to return now

I have heard many people running for office who claim anyone who questions that we can return to the good old days of 5%+ growth of being unpatriotic. In this narrative our debts are huge but they were in the 1980's as well ans well soon have 5%+ growth that will evaporate our debts for us.

The evidence is that once countries get as rich as we are now their quick growth from playing catchup then slows. Some of us might be able to get more productive now but not nearly the increase that happened in the 90's when we went from working on farms producing vegtables and potatoes to producing Viagra and Pentiums.

We are not going to have the growth rates we had in the 90's we like the rest of the OECD have entered a period of lower growth, what Tyler Cowen calls 'the great stagnation'. Anyone who says we should plan for Ireland growing at a rate higher then the 6.7% interest rate on the ECB/IMF loan are is trying to get you to take on billions of their debt.

The great stagnation a great short book. Though its arguments apply to America the lessons of what they Japan and other countries who developed before Ireland are important for us to learn.

Thursday, February 17, 2011

It seems non intuitive but I think Watson is more likely to win because its competition are so good. If you look at how well it did on Jeopardy here it seems to show Watson is better having humans splitting the points on questions it cannot answer as it is so quick to answer the ones it can.

When the humans buzz in they are right 19/23 about 83% of the time. Suppose Jennings was up against watson and me and I got zero buzz ins. Jennings may have gotten 11 of the buzz ins that Rutter got. Watson seems so fast on the buzzer that it seems to buzz first for nearly every question it could answer 44/50 times it tries to answer it is first.

This means that Jennings could nearly have doubled the number of answers he had but because there are two people who are really good at the sorts of questions only humans could answer these points are divided amongst the humans. Of the 23 human answers only 6 did Watson try to buzz in on.

There is a similar probability puzzle that might help in a three way duel. "You're a cowboy, and get involved in a three way pistol duel with two other cowboys. You are a poor shot, with an accuracy of only 33%. The other two cowboys shoot with accuracies of 50% and 100%, respectively. The rules of the duel are one shot per cowboy per round. The shooting order is from worst shooter to best shooter, so you get to shoot first, the 50% guy goes second, and the 100% guy goes third, then repeat. If a cowboy is shot he's out for good, and his turn is skipped. Where or who should you shoot first?"

Wednesday, February 16, 2011

Watson is a computer currently playing the quiz Jeopardy. You can see a video of this here

One useful question is how long this sort of supercomputer like power will take to be seen in everyday life? It has 3000 cores running and answers in less than three seconds. On one machine would take 2 hours to answer a question according to hereSo how long to get a desktop computer to be able to answer at this speed? I propose that half the speed improvement in Watson like programs will be from Moore's law and half from algorithm improvements. To go from 7200 seconds to say 2 seconds will require about 13 halvings in speed. I predict this will occur in the time it take processors to improve 7 doublings in computation. You can buy your own supercomputer now on the cloud and depending on how long you are willing to wait you could get an answer to a Watson like answer for costs of around a dollar (if you had the data and software Watson uses).

One comparison here is with chess. "It has been estimated that doubling the computer speed gains approximately fifty to seventy Elo points in playing strength (Levy & Newborn 1991:192)."

If doubling in processing power happens ever two years that would imply about a 30 point increase a year. The actual improvement (in computer v computer games) is described as 'With a 40-point annual improvement due to hardware upgrades, and a 30-point annual improvement due to software upgrades'. Implying improved algorithms are responsible for half the improvement.

This argument is summed up in this explanation as to why a fairly normal computer Deep Fritz in 2002 was an improvement over the supercomputer Deep Blue in 1997 'Deep Fritz has improved considerably over Deep Blue. Despite Deep Fritz having available only about 1.3% as much brute force computation, it plays chess at about the same level because of its superior pattern-recognition-based pruning algorithm'

I claim there is an analogy to Moore's law that says something like.

Once computers get good enough at a task to have a flashy TV challenge from then on algorithms will cause half the improvement in that task

So if I am right I think Watson like computation instead of talking over 25 years to move from twelve refrigerators to something we can use everyday should take less than 10 years. I would take an even money bet that in five years there will be a service you can use from your phone that is a lot closer to Watson than to a search engine we see today.

*update A friend just made this bet with me"20 euro bet that January 2015 there is a search engine that with a set of quiz questions from one gameshow program (the weakest link, who want to be a millionaire, university challenge) and it has to get 7/10 right". The effects of learning by reading (and autonomous cars) are examined in this rather long but brilliant blogpost